Botswana%20-%20The%20Morupule%20B%20Power%20Project

8/7/2019 Botswana%20-%20The%20Morupule%20B%20Power%20Project

http://slidepdf.com/reader/full/botswana20-20the20morupule20b20power20project 1/33

AFRICAN DEVELOPMENT BANK

Original: EnglishLanguage: English

PROJECT: Morupule B Power Project

COUNTRY: Botswana

PROJECT APPRAISAL REPORT

Date: 15 September 2009

Team Leader Mr. B. RAMChief PowerEngineer

OINF.3 2266

Mr. Y. VYASLeadEnvironmentalist

OIVP 2178Team Members

Mr. M. DIMMERSenior FinancialAnalyst

OINF.3 2377

Sector Manager Mr. A.T. DIALLO OINF.3 2125

Sector Director Mr. G. MBESHERUBUSA OINF 2034

Appraisal Team

Regional Director Mr. A. BEILEH ORSA 2039

H.R. HEERO (Senior Infrastructure Specialist) GFO 6134

E. NZABANITA (Principal Power Engineer) OINF.3 3081

A. OUMARU (Chief Transport Engineer) OINF.2 3075Peer Reviewers

G. HONDE (Senior Country Economist) ORSA 3542

L. MOOLA (Senior Disbursement Officer) FFCO.3 2603

C. AHOSSI (Chief Procurement Officer) ORPF.1 2718



TABLE OF CONTENTS

I – STRATEGIC THRUST & RATIONALE...........................................................................11.1. Project linkages with country strategy and objectives......................................................11.2. Rationale for Bank’s involvement ....................................................................................2

1.3. Donors coordination..........................................................................................................3

II – PROJECT DESCRIPTION.................................................................................................32.1. Project components...........................................................................................................32.2. Technical solution retained and other alternatives explored.............................................42.3. Project type .......................................................................................................................62.4. Project cost and financing arrangements ..........................................................................72.5. Project’s target area and population..................................................................................82.6. Participatory process for project identification, design and implementation ...................82.7. Bank Group experience, lessons reflected in project design ............................................92.8. Key performance indicators............................................................................................10

III – PROJECT FEASIBILITY ...............................................................................................103.1. Economic and financial performance .............................................................................103.2. Environmental and Social impacts..................................................................................11

IV – IMPLEMENTATION......................................................................................................144.1. Implementation arrangements.........................................................................................144.2. Monitoring ......................................................................................................................164.3. Governance .....................................................................................................................164.4. Sustainability...................................................................................................................174.5. Risk management............................................................................................................184.6. Knowledge building........................................................................................................19

V – LEGAL INSTRUMENTS AND AUTHORITY...............................................................195.1. Legal instrument .............................................................................................................195.2. Conditions associated with Bank’s intervention.............................................................195.3. Compliance with Bank Policies ......................................................................................20

VI – RECOMMENDATION...................................................................................................21

Annex 1 : Botswana’s comparative socio-economic indicatorsAnnex 2 : Table of ADB’s portfolio in BotswanaAnnex 3 : Key related projects financed by the Bank and other development partners

in BotswanaAnnex 4 : Map of the Project Area



i

Currency Equivalents

As of June 2009

1 UA = 1.55223 US Dollar1 UA = 10.4951 (Botswana) Pula

1 US Dollar = 7.04722 Pula1 Pula = 100 thebe

Fiscal Year

1 April – 31 March

Weights and Measures

1 metre (m) = 3.28 feet (ft)1 kilometre (km) = 0.62 mile1 hectare (ha) = 2.471 acres1 Kilovolt (kV) = 1000 volts1 Megawatt (MW) = 1000 kW1 Gigawatt (GW) = 1000 MW1 Gigawatt hour (GWh) = 106 watt hour

ABBREVIATIONS

AAAC All Alloy Aluminum ConductorAC Advance Contracting

ACSR Aluminium Conductor Steel ReinforcedADB or Bank African Development Bank GroupASP Average Selling PriceBPC Botswana Power CorporationBWP Botswanan PulaCFL Compact Fluorescent LampCFBC Circulating Fluidized-Bed CoalCNEEC-SBW China National Electric Equipment Corporation and Shenyang Blower

WorksCSP Concentrating Solar PowerDEA Department of Environmental AffairsDFI Development Financial Institutions

FIRR Financial Internal Rate of ReturnEIRR Economic Internal Rate of ReturnESIA Environmental and Social Impact AssessmentENPV Economic Net Present ValueEOCK Economic Opportunity Cost of CapitalEPC Engineering, Procurement and ConstructionESMP Environmental and Social Management PlanFC Foreign CostFE Foreign ExchangeGENBO Governance and Energy Network of Botswana



ii

FGD Flue Gas DesulphurizationFIRR Financial Internal Rate of ReturnFNPV Financial Net Present ValueGDP Gross Domestic ProductGEF Global Environment FacilityGoB Government of Botswana

HFO Heavy Fuel OilIBRD International Bank for Reconstruction and DevelopmentICB International Competitive BiddingICBC-SB Industrial and Commercial Bank of China/Standard Bank consortiumICT Information and Communication TechnologyIDC Interest During ConstructionIPP Independent Power ProducerLC Local CostMCL Morupule Colliery LimitedMDBS Multilateral Development BanksMIC Middle Income Country Trust FundMoFDP Ministry of Finance and Development Planning

MoMEWR Ministry of Minerals, Energy and Water ResourcesNPV Net Present ValueO&M Operation and MaintenanceOGWC Optical Ground Wire Cablep.a. Per AnnumPAP Project Affected PersonPC Pulverised CoalPIT Project Implementation TeamQPR Quarterly Progress ReportRAP Resettlement Action PlanSAPP Southern African Power PoolSPU Strategic Project UnitSWAP Sector Wide ApproachTBU Transmission Business UnitUA Units of AccountWACC Weighted Average Cost of CapitalWB World Bank



iii

Loan Information

Client’s information

BORROWER : The Government of Botswana (GoB)

EXECUTING AGENCY : Botswana Power Corporation (BPC)

Financing plan (excl. Interest During Construction, other financing fees, custom taxes and duties)

ADB’s key financing information

Loan currency Euro

Interest type Fixed or Floating

Interest rate spread Bank’s cost of funding+40bp

Commitment fee NilService Charge Nil

Tenor 20 years

Grace period 5 years

FIRR, FNPV (Base case) 6.7%, USD 328million

EIRR, ENPV (Base case) 24.9%, USD 1.7billion

Timeframe - Main Milestones (expected)

Concept Note approval 27 May 2009

Project approval October 2009

Effectiveness April 2010

Last Disbursement 31 December 2013

Completion 31 December 2012

Last repayment January 2030

Source Amount

(UA million)

Instrument

ADB 139.30 Loan

MIC Grant (ADB) 0.60 Grant

WB 98.2 Loan

ICBC-StandardBank

535.7 Loan

GoB 131.6

TOTAL COST 905.4



iv

Project Summary

1. PROJECT OVERVIEW

The project consists in the construction of a 600 MW (4 x 150 MW) coal fired power plant andassociated transmission infrastructure. The Morupule B plant will be located adjacent to theexisting Morupule A plant, at a mine-mouth. The plant will be connected to the national grid by

two new transmission lines. Measures will be put in place to ensure that the combined emissionsof Morupule A and B remain within the World Bank guidelines. The works for the project havestarted in June 2009 and the four generation units are scheduled to come online sequentiallybetween January and October 2012. The power transmission system will be commissioned byDecember 2011.

2. NEED ASSESSMENT

Botswana has until now principally relied on imports to meet its growing demand for power(peak demand of 500 MW in 2008 and around 600 MW projected for 2012). In 2008, 80% of theelectricity supplied in Botswana consisted of imports from neighbouring countries, principallyfrom South Africa. The remaining 20% was generated by the country’s only generation plant,Morupule A, a 25 year old plant that is becoming increasingly unreliable. As a result of the acute

energy crisis in the region, neighbouring countries are rapidly reducing exports to Botswana andthe country has been forced to resort to load shedding since 2008. Imports will be furtherreduced in coming years and are expected to be fully discontinued by 2013. The objective of theMorupule B project is to achieve energy generation self-sufficiency in order to substitute forrapidly declining electricity imports and thereby enhance the economic competitiveness of Botswana, fuel economic growth and diversification, and contribute to the poverty reductionobjectives of the government.

Moreover, the project will support the government’s strategy of increasing household accessrates from 47% to 80% by 2016. Finally, the project will be beneficial to the region as a whole asit is expected that Botswana will become a net energy exporter by 2014.

3. BANK’S ADDED VALUEThe Bank has provided advice to BPC on the implementation arrangements and theenvironmental and social management plan for the project, as well as provided feedback to theMinistry of Energy, Minerals and Water Resources with regards to the envisaged institutionaland pricing reforms for the sector. Together with the World Bank and the ICBC-Standard Bank consortium, the Bank is ensuring that the project is fully funded with newly raised capital andimplemented according to schedule.

4. KNOWLEDGE MANAGEMENT

The project comprises a number of technical assistance activities related to the (i) Morupule Bproject; (ii) capacity building at BPC; and (iii) the establishment of an independent regulator andthe diversification of Botswana’s energy sources, which are being funded by the World Bank.Through a MIC Grant, ADB will be financing the Feasibility Study for a 200 MW ConcentratingSolar Power (CSP) plant.

The contracts with the EPC contractor and the Consultant for the power plant have significantrequirements in terms of staff training and capacity building. Besides, the plant will be operatedunder an Operation and Maintenance contract in early years of operation and training will beprovided to over 300 local employees so that it can be fully operated by newly recruited BPCstaff thereafter.





vi

Project Timeframe

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 31 Loan Approval X

2 General Procurement Notice X

3 Loan Signature X

4 Loan Effectiveness X

5 Procurement of Consultant for

supervision of construction of the

project and preparation of CSP

feasibility study

6 Preparation of CSP feasibility

study

7 Design, Preparation and Approval

of Bid Documents

8 Issue of Specific Procurement Notice X

9 Bidding Period

10 Evaluation, Contract Award and

mobilization11 Manufacturing, Supply, Erection

and Installation,

12 Testing and Commissioning

Year 2011

DESCRIPTIONS/n

Year 2009 Year 2010



1

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE

BOARD OF DIRECTORS ON A PROPOSED LOAN TO BOTSWANA FOR THE MORUPULE B

POWER PROJECT

Management submits the following Report and Recommendation on a proposed ADB loan of

UA 139.3 million and a MIC Grant of UA 0.6 million to finance specific components of theMorupule B power station and associated transmission infrastructure.

1. STRATEGIC THRUST & RATIONALE

1.1 Project linkages with country strategy and objectives

1.1.1 Botswana is an upper-middle-income country heavily reliant on the mining sector(39% of GDP) as well as other sectors (financial and business services (10% of GDP),manufacturing and construction (8% of GDP), and other services (25% of GDP)) that aredependent on the availability of reliable electricity supply. To date, Botswana has principallyrelied on imports to meet its growing demand for electricity (peak demand of 500 MW in

2008 and around 600 MW projected for 2012). In 2008, 80% of the electricity supplied inBotswana consisted of imports from South Africa’s Eskom and other neighbouring countries,while 20% was generated by the country’s only generation plant, Morupule “A”, a 25 yearold plant that has become increasingly unreliable1.

1.1.2 Because of inadequate supply and load shedding in the Southern Africa region,neighbouring countries have significantly reduced their power sale commitments for the2008-2012 period and imports are expected to be totally discontinued by 2013. As a result,load shedding has been occurring in Botswana since 2008. In the absence of sizeable newdomestic generation capacity to substitute for rapidly declining imports, BPC will be unableto meet the bulk of domestic electricity demand as of 2013.

1.1.3 As a result, the National Development Plan 10 (2009-2016) underscores the need toachieve national “energy security” in light of the region-wide power deficit. In addition,“self-reliance” is one of the four National Principles outlined in Vision 2016, the country’sdevelopment roadmap2. Therefore, securing adequate and reliable electricity supply throughimplementing Morupule B project would contribute to meeting GoB’s stated objective of achieving national “energy security”. The Morupule B project (600 MW) was identified asthe least-cost option to achieve electricity supply self-sufficiency.

1.1.4 BPC is implementing an emergency diesel plant on rental basis (70 MW) and islooking to secure 90 MW from a diesel plant implemented by an Independent PowerProducer (IPP), which would constitute Phase I of a 270 MW Coal Bed Methane projectunder exploration. BPC is also implementing Demand Side Management measures including

(i) installation of Compact Fluorescent Lamps (CFL) (ii) water heating control and (iii) tariff restructuring study. All these measures are aimed at ensuring that adequate power supply isguaranteed until Morupule B comes on-line in 2012, by which time Botswana will achieveenergy security in support of NPD 10.

1 The plant annual availability currently is less than 50%2 Vision 2016 is a document prepared by a Presidential Task Group in 1997 with a view to present a long-termdevelopment roadmap to 2016, the year when Botswana will celebrate its 50th year of independence



2

1.1.5 The two pillars identified in the Bank’s CSP for Botswana (2009-2013) are (1)support actions to expand private sector investment; and (2) remove infrastructurebottlenecks to enhance competitiveness and growth. The Morupule B project has beenincluded in the CSP for implementation in order to remove the infrastructure bottlenecks asone of the Final Outcomes in support of Pillar 2.

1.2. Rationale for Bank’s involvement1.2.1 As noted above, the Southern African region as a whole is experiencing powergeneration deficits as a result of higher demand growth than projected over the past decade.With the objective of reducing dependence on imported power, assisted by PB Power, BPChas prepared a generation expansion feasibility study in 2004, which was updated in 2006.The study recommended the development of a coal fired power plant with a capacity of 600MW close to the existing Morupule power station. Separately, GoB is also supporting thedevelopment of the Mmamabula power plant (1200 MW – 300 MW for BPC and 900 MWfor Eskom) by an IPP. However, the timing for the implementation of Mmamabula is not yetclear, in part due to the plant size having been revised and the mobilisation of financinghaving been delayed. Separately, BPC had also initiated the feasibility study for Morupule BPhase II (consisting in an additional 600 MW of capacity).

1.2.2 A 10 Year Transmission Development study was conducted in 2006/7 to guide ontransmission investments for the period 2007 – 2016 which covered the integration of newpower plants: Morupule B Phases 1 & 2 (600 MW each) and Mmamabula (1200 MW). Thetransmission system development study recommended the construction of two new lines: (i) a400 kV transmission line from Morupule B to the existing 400/220 kV substation at Phokeje;and (ii) from Morupule B to Isang substation just north of Gaborone. An inter-tie betweenMorupule B and Morupule A was also recommended. Furthermore, BPC has conducted adetailed study on the requirement of the reactive power to ensure voltage stability forreliability of the electricity supply in the country3. The design of these transmission lines,substations and inter-tie has now been completed.

1.2.3 The proposed project has been conceived on the basis of the above-mentioned studies.Furthermore, the viability of the conceptualized project has been confirmed by consideringthe regional studies conducted under the aegis of the Southern Africa Power Pool (SAPP4), of which Botswana Power Corporation is a member. These studies are : (i) the Southern AfricaRegional Generation and Transmission Expansion Plan (November 2007); and (ii) the WorldBank’s study on the Development Strategy for Transformative Generation and Transmissionprojects in Sub-Saharan Africa (June 2008). These studies confirmed Morupule B as a‘priority project’ from a regional perspective.

1.2.4 The Bank’s participation in the financing of the project has been secured on the basisof a competitive selection process through which proposals from a wide range of DFIs and

commercial banks were considered. The Government of Botswana (GoB) has successfullymobilized the required external financial resources for this project from the Industrial andCommercial Bank of China and Standard Bank Consortium (ICBC-SB) and the IBRD.ICBC-SB signed a 20 year loan agreement for US$ 825 million on the 15th June 20095 and

3 Reactive Power Compensation Report, dated May 20094 Operating members: Botswana, Mozambique, South Africa, Lesotho, Namibia, DRC, Swaziland, Zambia andZimbabwe. Non-operating members: Malawi, Angola and Tanzania.5 Supported by guarantees from (i) GoB; as well as (ii) Sinosure (to be provided in the form of an insurancepolicy) and IBRD for years 1-15 and 16-20 respectively



3

IBRD’s Board is expected to consider the Partial Credit Guarantee and the loan for theproject in October 2009. ADB funding is required to close the financing gap of the project.Given the size of the investment and the strategic importance of Morupule B to the country,the Government’s request to the Bank to fund this project deserves the support of the Bank.

1.3 Donors coordination

1.3.1 Botswana has for the past decade enjoyed sustained economic stability and high levelsof foreign reserves6, principally as a result of high export revenues from the diamond miningsector. As an upper-middle income country, most of Botswana’s traditional donors havereduced the level of their assistance to the country7. It is only recently, in order to finance thegrowing fiscal deficit stemming from a contraction in economic activity, that GoB has startedre-engaging with DFIs for loan products. It is in this context that ADB approved a UA 1billion Economic Diversification Support Loan in June 2009. The Loan Agreement has beensigned.

1.3.2 The Ministry of Finance and Development Planning coordinates the donor activities.A Development Partners Coordination Forum was established in 2007 to coordinate ODA

and meets twice a year. In the power sector, the number of donor-funded projects has beenvery limited and focussed on technical assistance and renewable energy projects (a list of donor-funded projects is included in Annex 3). During the Preparation and AppraisalMissions, meetings were held with GoB, BPC and the World Bank with a view to (i) devise aharmonized approach in the implementation of the Morupule B project; and (ii) discussdevelopments in the power sector, particularly with regards to sector reforms and thediversification of energy sources. With regards to the latter, it has been decided that ADBwill fund the Feasibility Study of a 200 MW Concentrating Solar Power (CSP) Plant. On itsside, the WB will fund a number of Technical Assistance projects for BPC and the Ministryof Minerals, Energy and Water Resources (MoMEWR), which are detailed in Section 4.6.

2. PROJECT DESCRIPTION

Project Objective

The objective of the project is to achieve energy generation self-sufficiency in orderto substitute for rapidly declining electricity imports to support economic growth and reducepoverty.

2.1 Project components

The project will comprise the components summarized in table 2.1 hereafter:

6 Foreign reserves represented 23 months of import in 20087 Development grants have in recent years only accounted for a small part of total revenue representing about0.7% of the GDP while external loans only represent 4% of GDP



4

Table 2.1: project components

Component name Est. cost

(UA

million)

Component description

A Power Plant(including the fuel

for commissioning)

688.1 • Supply and installation of a 600 MW pulverised coal firedpower plant comprising 4 units of 150 MW each

• Fuel used during the commissioning of each of the 4 generatingunits prior to full commercial operation

B Water SupplySystemDevelopment

50.7 • Includes an interconnection to the existing North-South Carrierand, as a backup, new water supply developments includingwells and pipelines

C PowerTransmissionSystem andSubstations

150.8 • One 400kV, 105 km transmission line from Morupule “B” to anexisting 400/220 kV substation near Selebi Phikwe (Phokojesubstation). Line to include optical ground wire cable (OPGW)for optic fibre telecommunication facilities

• A new 400/220 kV substation to be developed about 60 kmfrom Gaborone (Isang substation) ,

• One 400 kV, 215 km transmission line from Morupule “B” to

Isang 400/220 kV substation, a new substation referred toabove. Line to include optical ground wire cable (OPGW) foroptic fibre telecommunication facilities.

• Reactive Power Compensation equipment to be installed forsecure transfer of up to 530 MW to either Phokoje or Isangafter loss of any one of the 400 kV transmission linesconnecting the power plant to the grid

• Inter-tie line 400/220 kV power transformer to link the existingMorupule “A” to the proposed Morupule B power plant

• Automatic Generation Control Equipment

D TechnicalAssistance

2.8 • Control Area Establishment

• Training of Power Plant Operators

• Harmonic Studies

• Feasibility Study of 200 MW Concentrating Solar Power• Carbon Capture Readiness

E Project Supervision& Management

13.0 • Consultancy Services for Project Supervision and Management

• Environmental and Social Management Plan (ESMP),including Resettlement Action (RAP)

Total 905.4

2.2 Technical solution retained and other alternatives explored

2.2.1 Until now, Botswana has been able to import the bulk of electricity supplies fromSouth Africa’s Eskom. However, due to the regional energy crisis, Eskom will significantly

reduce power exports to Botswana over coming years and has declined to supply firm poweras of 2013. If no domestic generation capacity is built to substitute for these decliningimports, the consequences would be disastrous for the country.

2.2.2 GoB has considered several electricity supply options to substitute for the importedpower. Coal currently is the sole indigenous resource that can be used for the development of electricity generation capacity in a scaleable and timely manner. A Coal Bed Methane projectis currently under exploration but resources have not been proven to date. Similarly,Botswana has prepared a pre-feasibility study and is actively looking to develop solar power



5

plants in the future, but such schemes could not be used to meet the huge requirementsstemming from declining imports over coming years. Finally, oil-powered generation plantsfor base load generation would be considerably more expensive than coal-fired units as aresult of the availability of cheap domestic coal resources, compared to higher and morevolatile oil prices and considerable transport costs from the nearest port.

2.2.3 Finally, the development of a new coal-fired plant ( Morupule B-4X150 MW)adjacent to the existing Morupule ‘A’ plant was adopted as the least cost solution toguarantee electricity supply self sufficiency as a result of the following factors: (i) adequateavailability of coal resources of suitable quality; (ii) mine already developed on-site forMorupule A (mine expansion will be required); (iii) availability of adequate water supply andof existing water supply infrastructure; (iv) scope for synergy with transmission infrastructurefor Morupule A and Mmamabula; (v) availability of land, environmental suitability andavailability of transport infrastructure.

2.2.4 A coal-fired power plant requires prudence in selecting boiler technology. The mainfactors considered are the type of coal, power system reliability and the electricity grid. Twooptions were considered for the Morupule B Power Plant, namely (i) Circulating Fluidized-

Bed Combustion (CFBC) and (ii) Pulverised Coal (PC) boilers. The CFBC boiler technologywas preferred over PC because it is better suited to the type of coal found in Botswana. CFBCboilers process solid fuel where the fuel is suspended in a mixture of superheated air andsand, collectively called “fluidized bed”. Reagents like limestone are added and temperaturesare controlled to directly capture the sulphur and reduce the formation of Nitrogen Oxides.

2.2.5 For CFBC, two technologies were considered, namely (i) sub-critical steamconditions and (ii) super-critical steam conditions. The latter was considered in order toachieve higher efficiency level but it was found that there is limited experience with thistechnology. Indeed, the first supercritical CFBC boiler of 460 MW rating is underconstruction at Lagisza in Poland. Besides, the single unit size is more than the BPC grid cansustain if there is an unplanned outage of the unit. For the above reasons, the application of CFBC super-critical boiler technology was rejected.

2.2.6 Furthermore, the Pulverised Coal super-critical technology was considered.Traditionally, the plants which adopted the super-critical technology were of large capacity,more than 500 MW (e.g. Matimba and Medupi of Eskom). Given the nature of the BPC’spower system and the electricity grid limitation, the application of the PC super-critical boilertechnology was also rejected.

2.2.7 The Morupule B power plant will deploy CFBC boiler technology. The plant will besupplied coal from the existing mine currently supplying coal to the Morupule A power plant.The coal supply agreement is expected to be signed before October 2009. The coal will be

transported by overland conveyors that are covered to a coal processing plant where the coalwill be separated, the coarse coal washed, and transported to the power plant B via anotherset of conveyors. This method of transporting coal is more cost effective than transportationby trucks. However, the conveyors belts when they break down will cause the spilling of coaland disruption of supply to boilers. The maintenance of the conveyor belts is part of theemergency preparedness plan to minimise the accidental spillage and the disruption of supplyto boilers.



6

2.2.8 The use of dry-cooling through the use of air cooled condensers as opposed to a wetcooling tower system will reduce water consumption (by as much as 70 to 90%), as will theinstallation of electrostatic precipitators to minimise the particulate emissions from the powerplant. The use of air cooled condensers is the key technology used in the power plant toconserve water.

2.2.9 To evacuate power from the Morupule ‘B’ Power Station, a 400 kV transmissionsystem with OPGW shield wire will be constructed to transmit power to a 400/220 kV Step-down Substation at Isang, north of Rasesa. The alternative to build 220 kV and 765 kVtransmission lines were considered but rejected based on technical requirements and financialconsiderations. The Isang substation and Phokoje will be connected to the new Morupule “B”Power Station, via one 400 kV line.

2.2.10 The existing 220 kV lines from Morupule A to Segoditshane and Thamaga will beturned into the Isang substation. Two 315 MVA autotransformers will be provided to couplethe 400 kV and 220 kV bus bars. The Statistic VAR compensators will be installed on the400 kV bus bars at appropriate locations.

Table 2.2: project alternatives considered and reasons for rejection

Alternative Brief description Reasons for rejection

Generation

a) No newgenerationcapacity built / Reliance onpower imports

b) Other powersources

c) Plant size

d) Boilertechnology

Transmission

e) Voltage of transmission line

a) Botswanacurrently needs toimport >80% of power consumednationally

b) (i) Coal BedMethane; (ii) Solar(iii) Oil

c) Plant size of 600MW with 4x 150MW units wasselected

d) Super-criticalversus sub-criticalboiler

e) 220 kV or 765kV instead of 400kV lines

a) Due to the regional power crisis, neighbouringcountries will considerably reduce exports to Botswanaover coming years and totally discontinue firm exports by2013. Imports will therefore no longer be available overcoming years and the economic cost of not meeting thedemand for electricity would be enormous

b) (i) Reserves not proven yet; (ii) Not possible todevelop in scaleable and timely manner to meet supplydeficits over medium-term; (iii) Considerably more

expensive and volatile (fuel would need to be imported).Would not provide the same level of energy self-reliance

c) While a smaller plant size (400 MW) was originallyconsidered, it was rejected to ensure that Botswanabecomes self-sufficient. Implementing 4x150 MW unitswas identified as the least-cost configuration by takinginto account the condition of the electricity grid

d) Sub-critical CFBC boiler technology chosen over PCand CFBC supercritical due to the fact that CFBC is moresuited to the type of coal and grid limitations inBotswana.

e) the 400 kV option was deemed to be optimal forBotswana’s transmission system based on the 10 YearTransmission Development study conducted in 2006/7

2.3 Project type

2.3.1 The proposed project is a standalone project which will be connected to the country’sexisting transmission and distribution infrastructure through two new transmission lines so asto ensure power evacuation in the event of a failure on one of the lines.



7

2.4 Project cost and financing arrangements

2.4.1 The project costs, excluding custom taxes and duties, financing fees and InterestDuring Construction (IDC) on the ICBC-SB loan, are estimated at US$ 1,394.3 million (UA905.4 million) based on cost estimates as at June 2009. These cost estimates include physicalcontingencies of 10% on all components except for EPC contract, which has already beenawarded. The price contingencies of 5% have been applied on all components. The

breakdown by component and financier for the project as a whole is presented below.

Table 2.1: Project costs by Component and source of financing (in million UA)

Components Financier Local Foreign Total AfDB WB ICBC GoB

A: Power Plant

Power plant ICBC / GoB 94.6 535.7 630.3 - - 535.7 94.6

Start up fuel for commissioning AfDB - 22.7 22.7 22.7 - - -

- - - -

B: Water supply systems

Water supply systems WB / GoB 2.3 41.6 43.9 - 41.6 - 2.3

C: Power transmission system and substations

Morupule B-Phokoje 400 kV line and associated works WB 0.5 23.3 23.7 - 23.7 - -

Morupule B-Isang 400 kV line and associated works AfDB 0.8 37.1 3 7.9 37.9 - - -

Supply of 3 Transformers (2 for Isang and 1 for Morupule B WB 1.6 15.6 17.2 - 17.2 - -

Isang 400/220 kV Substations AfDB 3.9 35.4 39.3 39.3 - - -

Reactive Power Compensation Equipment AfDB 1.2 10.5 11.7 11.7 - - -

Purchase of AGC Hardware and Software WB - 0.8 0.8 - 0.8 - -

- - - -

D: Technical assistance

Consultancy Services for Power System Harmonic Studies WB - 0.6 0.6 - 0.6 - -

Consultancy Services for Control Area Establishment WB - 0.5 0.5 - 0.5 - -

Training for Power System Operators WB - 0.5 0.5 - 0.5 - -

Feasibility Study of Concentrating Solar Power AfDB - 0.7 0.7 0.7 - - -

- - - -

E: Project management

Consultancy services for project supervision and mgmt AfDB / GoB 1.6 9.0 10.5 9.0 - - 1.6

RAP / ESMP GoB 0.7 - 0.7 - - - 0.7

Base cost 107.1 734.1 841.2 121.3 85.0 535.7 99.1

Physical Contingencies(@10%) - all items except EPC 1.2 19.8 21.1 12.1 8.5 - 0.5

Subtotal 108.3 753.9 862.2 133.4 93.5 535.7 99.6

Price Contingencies (@5%) - all items except EPC 0.7 10.9 11.6 6.7 4.7 - 0.3

EPC contingency (@ 5%) 4.7 26.8 31.5 - - - 31.5

Total Cost 113.7 791.6 905.4 140.1 98.2 535.7 131.4

Million UAMillion UA

Table 2.2: Project costs by source of financing (in million UA)

Financiers In Million UA %

ADB loan 139.3 15%

MIC grant 0.6 0.1%

WB 98.2 11%

ICBC 535.7 59%GoB 131.6 15%

Total 905.4 100%

2.4.2 The project costs relevant for ADB funded components and categories of expenditure are given below:



8

Table 2.3 The costs of the ADB funded components (in million UA)

Components Local Cost Foreign Cost Total

Start up Fuel - 22.70 22.70

Morupule B-Isang Line 0.8 37.10 37.90

Isang Substation 3.9 35.40 39.30

Reactive Comp. 1.2 10.50 11.70Technical Assistance - 0.70 0.70

Project Management - 9.00 9.00

Sub-Total 5.90 115.40 121.30

Contingencies 0.89 17.91 18.80

Total 6.79 133.31 140.10

Table 2.4 ADB funded components by Category of Expenditure (in million UA)

Exp. Categories Local Cost-LC Foreign Cost-FC Total

Goods 5.90 105.70 111.60

Services 0.00 9.00 9.00

Sub-Total 5.90 114.70 120.60

Contingencies 0.89 17.81 18.70Total 6.79 132.51 139.30

2.5 Project’s target area and population

2.5.1 The proposed Morupule B project is situated adjacent to the existing Morupule PowerStation, which lies approximately 280 km north of Gaborone. Palapye is the nearest village,situated approximately 5 km to the east of the power station. Morupule B project is of greatstrategic importance for Botswana as it will contribute to national energy security andimproving the competitiveness of the national economy. It also will benefit the wholepopulation, estimated at 1.8 million in 2008. The direct project beneficiaries will be thehouseholds, mines and manufacturers and economic actors at large.

2.5.2 The availability of reliable electricity supply will allow the country to continue itsrural electricity access enhancement program, with a view to increase national householdaccess rates from 47% to 80% by 2016. The enhanced electricity access rate will contribute toreducing rural poverty.

2.6 Participatory process for project identification, design and implementation

2.6.1 Public consultations were conducted for the project as part of the variousenvironmental and social assessments. The process has been incorporated into a PublicConsultation and Disclosure Plan (PCDP), which includes the findings of the authorities andpublic participatory meetings held at the national and district levels as well as meetings in thevillages along the proposed transmission line routes. The stakeholder engagement process forthe ESIA of the power plant was commenced in August 2007 with the publication of anadvertisement in English and Setswana announcing the project. An invitation to attend thescheduled public meeting regarding the project was included in the advertisements, and atthese meetings a background information document was presented in both Setswana andEnglish.

2.6.2 A public meeting was held at Palapye main Kgotla on September 4, 2007, and wasconducted in Setswana as all the participants could speak and understand the language. The



9

meeting was attended by 31 people including the consultations team and representatives fromBPC. A meeting with key local and central government officers was also convened inPalapye in September 2007, and the stakeholder engagement team undertook consultationswith focus groups comprised of local farmers in the following lands areas within 10 km of theproposed power station site: Morupule; Mantshadidi; Mmalenakana; Dikabeana; andMolapowadipitse.

2.6.3 A Grievance Resolution Procedure has been developed, which describes the processwhereby stakeholders can report their concerns and grievances related to activities, andidentifies processes for addressing these concerns. It also allows for stakeholder involvementat various points in the resolution process. The Grievance Resolution Procedure makespossible the lodging of a grievance in any appropriate format (written, verbal, telephonic,email, post etc). The process is designed to be easily accessible and friendly.

2.6.4 While the above explained consultation process was initiated during the ESIA phaseof the project, it will continue through construction and operation of the power plant.

2.7 Bank Group experience, lessons reflected in project design

2.7.1 The Bank’s experience with power sector projects (fossil fuel fired generation,transmission, technical assistance) has been suitably incorporated in the project. As such, thefollowing project features have been ascertained: (i) the executing agency has the adequatecapacity to implement the project of this nature; (ii) there is a champion of the project; (iii)there is a strong country ownership of the project; (iv) experienced and qualified consultantsare employed; (v) there has been adequate consultation with communities and stakeholderson issues related to the project design and safeguards; (vi) there is adequate human resourcecapacity to implement safeguards; (vii) there are adequate financial resources to implementthe measures to minimise the negative environmental and social impacts of the project; (viii)risks have been identified and can be mitigated; (ix) the financial management systems of thebeneficiary are acceptable; (x) the government is committed to undertake reforms forimproving sector governance, structure and the efficiency of service delivery; and (xi) theproject includes adequate Technical Assistance components as discussed in section 4.6.

2.7.2 For a project of this kind, the past experience recommends that Bank supervision isadequately staffed with appropriate skill mix. At a minimum, the project will be supervisedtwice a year and a mid-term review will also be conducted.

2.7.3 The Bank, through a MIC grant will also finance a Technical Assistance componentto prepare a Feasibility Study for a 200 MW Concentrating Solar Power (CSP) plant. Thiswill pave the way for diversification away from coal for electricity generation in order toaddress climate change issues. CSP is a strategic option for Botswana to utilise solar energy

which is a very important energy resource for the country (21 MJ/m

2

/annum)

but remainsunexploited. The exploitation of solar energy to produce power is also a strategic option forthe Bank which is involved in neighbouring South Africa, where it is preparing theInvestment Plan to fund a CSP project (100 MW) under the Clean Technology Fund. Inpartnership with other donors, the Bank will progressively mobilise financial resources forscaling up the funding of solar power plants in the Southern Africa region.



10

2.8 Key performance indicators

2.8.1 The Morupule B Power Project will result into the implementation of a power plantand power evacuation systems to ensure national self sufficiency in the supply of electricityas of 2013. Specifically, the main deliverables of the project are : (i) a 600 MW coal firedpower plant (ii) 317 km 400 kV transmission line (iii) a new 400/220 kV substation at Isang.

2.8.2 Moreover, the increased electricity produced by the project will help the governmentincrease the household electricity access rate from 47% (2008) to 80% (2016), for which theGoB is implementing (i) 100 village electrification with financial assistance from Norwayand (ii) renewable energy based electrification funded by GEF.

2.8.3 Finally, the MIC grant will be used to finance a Technical Assistance component toprepare a Feasibility Study for a 200 MW Concentrating Solar Power (CSP) plant to diversifyenergy supply and address climate change issues. The TOR for the Feasibility Study arepresented in Annex 9. Moreover, the World Bank funded technical assistance activities willresult into 300 trained power plant operators, a load dispatch system, carbon capturereadiness and improved quality of electricity supply without harmonics.

2.8.4 Besides, the studies on pricing and sector reforms to establish a sector regulator willbe prepared to guide GoB with sector reforms in order to improve BPC’s financial standingand attract private investors in the sector.

2.8.5 The power plant for ADB is an associated facility as the 600 MW coal-fired powerplant is being funded by ICBC-SB with guarantees provided by GoB and IBRD andinsurance to be provided by Sinosure. Monitoring of environmental impacts will be donethrough compliance with the ESMP as discussed in detail in B8/Annex 8. Specific attentionwill be paid on the following (i) Stack emissions; (ii) Air quality; (iii) Water resources; and(iv) Waste monitoring, The automatic monitoring system used will indicate when emission

limits for each pollutant are being approached.

3. PROJECT FEASIBILITY

3.1 Economic and Financial Performance

3.1.1 As shown in the table below, the results of the financial and economic analysessupport the implementation of the project. The Base Case FIRR is estimated at 6.7%, whichis greater than BPC’s estimated Weighted Average Cost of Capital (WACC) of 5.0% and theBase Case EIRR is estimated at 24.9%, which is greater than the assumed EconomicOpportunity Cost of Capital (EOCK) in Botswana of 12.0% (all rates are expressed in realterms). Moreover, key sensitivities support the resilience of the project’s financial returns andeconomic benefits. The level of the returns computed in the financial and economic analyses

are impacted by the prevailing low tariff levels and the very high cost of alternativetechnologies respectively. A detailed discussion of the assumptions and results of theseanalyses is included in B.7/Annex8.

Table 3.1: Base Case financial and economic returnsItem Base case returns

FIRR / FNPV @ 5.0% real (Base case) 6.7% / Pula 2.3 billion (USD 328 million)

EIRR / ENPV @ 12.0% real (Base case) 24.9% / Pula 11.9 billion (USD 1.7 billion)



11

Tariff Analysis

3.1.2 The Government, through the Ministry of Minerals, Energy and Water Resources, isresponsible for setting electricity tariffs. The Average Selling Price (ASP) in Botswana isThebe 36 / KWh ($ 5.1 cents). BPC has historically been able to keep tariffs at a low level asit sources the bulk of its supply from Eskom. However, going forward BPC’s cost structure

will radically change, with the Corporation sourcing the bulk of its power from its own plantsand most likely IPPs. Separately, the current tariff structure in Botswana does not include anycross-subsidisation.

3.1.3 Going forward, GoB is committed to establishing an independent regulator in order toset tariffs at a level that will (i) ensure that the Corporation meets the requirements of theBPC Act by operating as a commercially viable entity; and (ii) attract private investors in thesector in a sustainable manner. Moreover, the tariff segmentation and structure will bereviewed to make electricity more affordable to poorer customers, increase connection rates(particularly in rural areas) and sustain economic growth.

3.1.4 As such, the Ministry of Minerals, Energy and Water Resources (MoMEWR) is in the

process of engaging two consultants funded by the World Bank (i) to develop an appropriatepricing policy together with a pricing model; and (ii) to assist in establishing an independentregulatory authority, staffing it and building capacity. It is intended that the regulator will beestablished by 2011. In the interim period, tariffs will continue to be determined by GoB.MoMEWR has already publicly announced that there will be a hike in prices to cover forBPC’s operating costs and to reach a level that will allow the recovery of the corporation’scapital investments (including costs associated with the expansion of the distribution network in support of the government’s target for 80% of households to be connected to the grid by2016). It is noted that electricity tariffs are also expected to be increased substantially inneighbouring countries (South Africa for instance) in order to finance capital expenditureprograms. As part of the supervision of the project, the Bank will review the progress of thesereforms, consult and advise MoMEWR and BPC as necessary.

3.2 Environmental and Social impacts

Environment

3.2.1 The Project has been assigned Category 1. The Executive Summaries of the ESIAstudies were posted on the Bank’s website and distributed to the Board on 14 July 2009 (Ref:ADF/BD/IF/2008/164). Full documents are available on BPC’s website (www.bpc.bw). Inaddition to meeting the requirement of the Botswana’s Department of Environmental Affairs(DEA), all the ESIAs also conform to the Bank’s Environmental & Social AssessmentProcedures (ESAP, 2001). Other applicable Bank’s safeguard policies include InvoluntaryResettlement, Consultations with CSOs/NGOs, Gender, Poverty Alleviation, and InformationDisclosure. The project also complies with the World Bank OP 4.01 on EnvironmentalAssessment, the Operational Policy on Involuntary Resettlement (OP 4.12), and the OP 4.37on the Safety of Dams given the need to ensure sound management of the ash impoundmentdam. More detailed information is provided in B.8/Annex8.

3.2.2 A number of environmental and social studies related to the development of coal-firedpower generation and transmission at Morupule have been completed. These include: theESIA studies for the Morupule B Power Station, the two transmission corridors, the IsangSubstation the MCL mine expansion and the well field proposed as a water source for



12

Morupule B were approved by DEA. Each ESIA contains an Environmental ManagementPlan for ongoing monitoring and management. The Resettlement Action Plan (RAP) for thetransmission line route between the Morupule B and Isang substation has also beencompleted.

3.2.3 Transmission Line: No significant adverse impacts are expected for the transmissionlines as they follow the existing right-of-way. A sum of 7.8 million Pula (US$ 1.1 million)has been estimated to compensate for the affected population along the transmission route forminimum farmlands. Confirmation from a Financial Institution acceptable to ADF of thedeposit into an escrow account of the amounts for the resettlement and compensation, as setout in the Resettlement Action Plan (RAP) with respect to components to be financed by theBank is a condition prior to first disbursement.

Power Plant :Air Quality

3.2.4 As indicated in 2.2.5, the use of CFBC boilers would produce lower emission of SO2 and NOx compared to typical coal fired power plant. Notwithstanding, the baseline ambientair quality of the local air shed was simulated through dispersion modelling because there is

insufficient on-site data available for the criteria pollutants of concern. The main sourcescontributing to the ambient air quality within the vicinity of the proposed Morupule B PowerStation are the current Morupule Power Station and the Morupule Coal Mine. The other mainsources, i.e. Matimba and Medupi Power Stations across the border in South Africa areconsidered to be too far away to have a significant influence on the backgroundconcentrations at the Morupule Power Plant. The predicted baseline SO2, NO2 and PM10baseline concentrations due to the existing Morupule Power Plant are summarized in Table8.1/ B.8/ Annex 8.

3.2.5 Specifications for the Morupule B Power Station require achievement of World Bank emissions standards. While Botswana has not established emissions standards for powerstations, the Air Pollution (Prevention) Act 1971 requires the application of best practicable

means to control emissions. World Bank emissions standards are more stringent than themaximum permissible limits specified by the Botswana authorities for Morupule A’s currentboiler operations. The EIA for Morupule B found that current emissions from Morupule Amay be causing occasional local exceedances of Botswana air quality standards for ambientsulphur dioxide concentration, suggesting that it may not be possible for Morupule B to meetambient air quality standards without reductions in emissions from Morupule A. TheMorupule B Power Station has a relatively small contribution to the high SO2 concentrationsas shown in Table 8.2/B8/Annex 8.

3.2.6 Prior to making a decision regarding investment in sulphur dioxide emissions controlat Morupule A, BPC intends to undertake both an environmental audit of current operationsand a two-year air quality monitoring study to better define the issues to be addressed andpossible solutions. Based on the results of the two-year air quality monitoring campaign,BPC will implement measures as necessary to ensure that the joint operation of Moropule Aand B does not lead to exceedances of the World Bank or Botswana air quality standards.

3.2.7 Additionally, a Regional Environmental and Social Assessment is also planned toconsider the cumulative and trans-boundary impacts of all planned coal-fired powerinvestments on both sides of the Botswana/South Africa border. The TORs for these twostudies have been finalized and will be financed by the World Bank or BPC. It is expected



13

that the study would recommend some retrofit to the existing Morupule A plant to installemission reduction measures particularly for the SO2, NOX and PM10.

Climate Change

3.2.8 Botswana’s current CO2 emissions have been calculated at approximately 2.0 tonnes

of CO2 emissions per person per year. This figure includes present coal production and use,all fuels, gas and firewood. The average figure for CO2 emissions per person per year formiddle-income countries is 3.8 tons. Botswana is a net sink for greenhouse gases at negative29.4 million tonnes of CO2/annum. The BPC project will contribute to Greenhouse Gasemissions primarily as a result of emission of CO2 from the burning of coal. The grossGreenhouse Gas Footprint of the project is estimated to be approximately 4 million tonnesCO2 equivalents per annum. Morupule B project would reduce it to negative 25 milliontonnes of CO2/annum. Currently, Botswana’s Greenhouse Gas Footprint is negative and willremain negative after the addition of the CO2 equivalents from this project.

3.2.9 The Morupule Power Station greenhouse gas contribution may be placed within thecontext of national greenhouse gas emissions by making reference to the greenhouse gas

emissions inventory included in the National Communication to the United NationsFramework Convention on Climate Change (UNFCCC, 2002). The Air Quality ImpactReport compiled by Airshed Planning Professionals in 2004 indicated that the currentMorupule Power Station contributed approximately 32.6%, 0.3% and 0.01% of the country’stotal CO2, NO2 and CH4 emissions respectively.

3.2.10 The GoB is implementing a renewable energy based electrification project to avoidgreen house gases. The project aims at reducing Botswana’s energy-related CO2 emissions bypromoting renewable and low Green House Gas (GHG) technologies as a substitute for fossilfuel (fuel wood, paraffin and coal) utilized in rural areas. The activities proposed in theproject are designed to remove barriers to the wide-scale utilization of renewable energy andlow GHG technologies to meet the basic electricity needs of individual households in terms

of lighting, power for radio-cassette/TV and income-generating activities.

Gender

3.2.11 Botswana has ratified most of the international conventions relating to genderequality. The Abolition of Marital Power Act (passed in 2004) is the most important piece of legislation. This Act has made women equal to men in marriage, property holding, domicileand guardianship of minor children. Going forward, the budget support program funded byADB, would impact positively on women through budgetary allocation to pro-poor sectors(education, health, agriculture and social welfare programs) which account for 48% of totalexpenditure. The program would support women empowerment by increasing thecontribution of the services sector to women employment from 75% in 2007 to 78% in

2009/10.

3.2.12 An energy-and-gender audit (2006) conducted by the Gender and Energy Network of Botswana (GENBO) found that the women users are not involved in policy formulation andtechnology development. Moreover, there also is a lack of disaggregated data for gendermainstreaming during planning. As the energy needs are different depending on gender andsocio-economic status, there is a need to take these differences into consideration duringpolicy and program formulation and implementation. To correct the situation, the “EnergyPolicy” funded by USAID envisages the creation of a gender-disaggregated database on



14

energy development within the country, mainstreaming gender and socio-economic status inall “Energy Policy” and programs and accelerate the representation of women at all levelsand in all spheres of the energy service provision industry.

3.2.13 At BPC, women are well represented. BPC Board (2008) is composed of four femaleand three male members. The female staff represents 19.40% of the total employees and

24% of the executive committee, senior and middle management. In partnership with theBank’s relevant departments, a dialogue with GoB during the supervision mission willinclude, among others, the gender based budgeting to be considered in the planning activitiesto further reinforce gender mainstreaming in BPC.

3.2.14 The project will contribute to increase the household electricity access rate inconjunction with GEF funded Renewable Energy based electrification and the electrificationprogram funded by the Government of Norway and Sweden. With the increased electricityaccess rate at household level women and children will be able to use the time for studying,knowledge building and income generating activities. Modern energy services availed willreduce women’s burden of domestic chores and it will inspire some of them to start small &medium enterprise such as food and beverage processing. Facilitated by electricity, the

penetration of ICT will increase, which is critical for women’s education, empowerment, andparticipation in markets. The empowered women will be able to engage to public life; theywill have their voices heard and views included in the formulation of policies and programswith respect to their needs for type of service, and choice of technology.

Social

3.2.15 The project will result into significant positive social impact due to thediscontinuation of load shedding and to additional customers that will benefit from modernelectricity for heating, cooling, cleaning and communication. At the same time, bettercommunication through cell phones, television and internet will create opportunities fortrading, education and empowerment.

3.2.16 The construction of the lines from Morupule B to Phokoje and to Isang will require alabour force of around 350. Each contract will require around 40 to 50 skilled workers whowill be brought in with the contractor. Most of the labour force will therefore be unskilledand sourced from a labour broker or labour department locally. A proper construction campthat is comprised of portable cabins will be built to accommodate the entire labour forceduring this time. These camps are usually fenced, have gate control and proper security.Various impacts have been identified for both the construction and operational phases of theproject.

4. IMPLEMENTATION

4.1 Implementation arrangements

4.1.1 Project Implementation Arrangements: The Government of Botswana will be theborrower of the Loan and BPC, which is 100% owned by GoB, will be the beneficiary andthe project executing agency. The MoMEWR will be leading in the preparation of thefeasibility study of CSP.

4.1.2 BPC has established an internal Executive Committee for project oversight andbottleneck redressing. An experienced Project Manager was recruited externally for the



15

overall coordination of the project’s implementation: power plant, transmission lines &substations and safeguards. The Project Manager reports to the CEO of BPC. A projectimplementation organigram is included in B3.4/Annex 4. A Strategic Project Unit (SPU) hasbeen created for the implementation of the Morupule B power plant, while the existingTransmission Business Unit (TBU) will be responsible for the implementation of thetransmission lines and substations. The TBU will be reinforced by employing two electrical

engineers to coordinate, monitor and supervise the implementation of the transmission linesand substations.

4.1.3 Regarding Safeguards, BPC will establish a Safeguards Unit which will beresponsible for the overall implementation, administration and enforcement of the ESMPs.BPC will appoint an Environmental Liaison Officer (ELO) to monitor the implementation of and compliance with the ESMP for the duration of the works. In addition, a Chief SafeguardOfficer will be appointed and will undertake regular audits of the construction sites andduring the operational phase. He will also be responsible for ensuring BPC’s continuingcompliance with the ESMP. BPC will ensure that the ESMP specifications are included in alltender documents issued for civil works, transmission lines and substations and activities onsite, and will monitor and enforce adherence to these requirements by the contractors. The

appointment of an Environmental Liaison Officer and a Chief Safeguard Officer is acondition for first disbursement of the loan. Their recruitment is underway.

4.1.4 The Project Manager is responsible to coordinate the works and monitor the progressof SPU, TBU and the Safeguards Unit. BPC has prepared a draft Project Procedure Manual,which will be finalized in consultation with the Bank.

4.1.5 BPC was assisted by a set of international consultants to prepare design and tenderdocuments for the construction of transmission lines and substations as listed below:

• Southern Transmission lines: Merz and McLellan (Botswana)

• Isang Substation : TAP/KEC Consortium

•

Northern Transmission Line : PB Power

Furthermore, BPC will recruit a consultancy firm for supervision of construction of the ADBfunded transmission line and substation.

4.1.6 Fitchner is supervising the construction of the power plant. For the Waterdevelopment system, the recruitment for design engineer recruitment is in progress. AConsultancy firm will also be recruited for the preparation of the ESIA and RAP for theWater System.

4.1.7 Finally, an inter-ministerial Steering Committee, headed by the Permanent Secretary,MoMEWR, will be established. The establishment of the Steering Committee will be a

condition to first disbursement. The Bank will be provided with the composition and the TORof the Steering Committee.

4.1.8 Implementation Schedule: Unit 1 is expected to be commissioned in January 2012,33 months from the date of the commencement date of the contract. Units 2, 3, & 4 will becommissioned at intervals of three months each. The ADB funded transmission line andsubstation will be completed over a period of 24 months from the contract award date. Theproject implementation timeline and the supervision schedule are summarised in B.9/Annex8.



16

4.1.9 Procurement arrangements: All procurement of goods, works, and servicesfinanced by the Bank, will be in accordance with the Rules of Procedures for the Procurementof Goods and Works, Rules of Procedures for the Use of Consultants. At the request of theBorrower, the Bank has authorised BPC to proceed with Advance Contracting pending Boardapproval of the project. An information note on the approval of AC has been distributed tothe Board. Since ADB is funding the transmission lines and substations in partnership with

the World Bank, BPC has requested the Bank to harmonize the procurement documents andprocesses with the World Bank. Consequently, the World Bank’s Standard BiddingDocument for Design, Supply and Installation has been adapted and harmonized with ADBprocurement rules and procedures for use in procuring ADB funded components, as detailedin the B 5/Annex 8.

4.1.10 Disbursement Arrangements: The Mission discussed the disbursement methods tobe applied for the Bank funded components of the project. With regards to the direct paymentmethod, BPC expressed concern that delays in disbursing payments to contractors will leadBPC making the interest payment to the contractors. GoB therefore opted for a combinationof (a) Direct Payment Method and (b) Replenishment Method. The details are given inB4.2/Annex8.

4.1.11 Financial Management, audit and reporting: BPC has detailed Policies andProcedures in place for the approval, recording and reconciliation of all financial transactions,which are discussed in the section B.4. BPC’s financial management policies and systems areappropriate to ensure that funds made available by the Bank for the financing of theMorupule B project are used and accounted for in an effective and reliable manner.

4.1.12 BPC publishes financial statements audited by international auditors (currentlyDeloitte) within 5 months of its Year End. Following the Bank’s requirements, a separateaudit report will be produced for the components financed by the Bank. The project’s auditedaccounts shall be submitted to the Bank within six months of the financial year-end.Furthermore, the Project will also fall within the normal review program of the Bank’s

Internal Audit, financial and fudiciary control.

4.2 Monitoring

4.2.1 The main deliverables of the project are (i) 600 MW coal fired power plant (ii) 317km 400 kV transmission line (iii) a new 400/220 kV substation at Isang, and stable nationalelectricity grid with improved stability and reliability of electricity supply to consumers. Thekey project outcome is that Botswana becomes self-sufficient in terms of power generation.

4.2.2 The progress of project outputs during construction will be measured using theConsultant’s monthly reports which will indicate the progress of works relative to the work plan. During the commissioning phase, the EPC contract for the power plant contains anumber of tests that need to be passed. The performance of the transmission lines will also

need to be tested prior to the contractor being released. Separately, the achievement of theproject outcomes will be measured using sector statistics compiled by BPC and MoMEWR.Finally, compliance with environmental and social guidelines will be assessed and confirmedby DEA. Quarterly Progress Reports (QPRs) detailing the progress of the Project’simplementation will be submitted to the Bank.

4.3 Governance

4.3.1 Botswana has repeatedly been the top sub-Saharan African (SSA) country on anumber of governance indices. MoMEWR has studied a set of different drivers to improve



17

the structure of the electricity industry and raise the bar for the operational efficiency of BPC:(i) Public Governance; (ii) Private Generation; (iii) Competition; and eventually (iv)Privatisation of BPC. The reform strategy of public governance was adopted as an interimmeasure and the operations of the Botswana Power Corporation were restructured in StrategicBusiness Units (Generation, Transmission, Corporate Services, Customer Services andSupply, and Rural). The process was completed in July 2007 and it contributed to improved

performance and increased accountability being expected from each unit. Furthermore, theElectricity Supply Act was amended in December 2007 in order to attract private sectorinvestors in the electricity sector. The privatisation of BPC is a long-term objective and GoBis implementing a number of sector reforms towards this objective.

4.3.2 MoMEWR has the authority to appoint the Board of Directors, including theChairman. BPC’s Chief Executive Officer is appointed by the Board, with the approval of theMoMEWR. As discussed earlier, GoB is committed to establishing an independent regulatorfor the electricity and Water sectors in order to allow BPC to operate as a commerciallyviable entity as well as to attract private investors in the sector.

4.3.3 With regards to financial governance, in line with industry best-practice BPC rotatesits auditors in order to avoid potential conflicts of interest (while Price WaterhouseCoopersaudited the FY08 accounts, Deloitte is currently auditing the FY2008-09 accounts).Moreover, the internal and external auditors have unrestricted access to the Chairman of theAudit Committee and the internal audit manager has direct access to the BotswanaDirectorate of Corruption and Economic Crime.

4.4 Sustainability

4.4.1 The project as conceptualized is technically sound, socially acceptable andenvironmentally sustainable. All project components including the construction of the highvoltage transmission lines and substations to be financed by the Bank will be based onstandard state of art technology. The Power Plant Technology is based on the CirculatingFluidized Boiler (CFB), which is more sustainable than the pulverized coal fired boilers.

Similar, the 400 kV transmission and substation technology has already been field tested inthe country. The project design has considered the site conditions, climate conditions and theinternationally accepted technical standards to avoid failure.

4.4.2 Assisted by international consultants, BPC is well positioned to implement thisproject. Technical assistance for the implementation of the power plant, associatedcomponents and overall project management (SOx emissions and air quality monitoring andmanagement, project management, training and workshops for Project Management Unit(PMU) will be provided by the World Bank.

4.4.3 BPC is going to operate and maintain the CFBC technology for the first time. TheEPC contractor will be engaged to provide O&M services in the first two years to avoid risk

of failure. The proposal is focussed on the safe operation of the station in the initial period,coupled with the training of local staff. CNEEC-SBW will provide approximately 240 staff who will train approximately 300 new BPC staff. It is intended that after that time, the plantwould be fully operated by BPC staff, thereby greatly contributing to national capacitybuilding. Besides, necessary spare parts for operation and maintenance have been plannedand will be procured.

4.4.4 The Executing Agency is unlikely to face any difficulty in maintaining and operatingthe transmission facilities because BPC has considerable experience in operating similar



18

projects. Finally, being the least cost generation option of sufficient scale to serve thecountry’s demand for power, the project is both financially and economically viable, asdiscussed in the analysis detailed in B.7/Annex 8.

4.5 Risk management

4.5.1 Key project risks during both construction and operation are summarized below:

Construction Risks

4.5.2 Key risks during construction are related to the capacity of BPC, the performance of the EPC contractor, coordination of the works and coal supply from MCL.

4.5.3 The Capacity of BPC has been reinforced through the recruitment of an experiencedProject Manager responsible for overall project management to ensure good coordinationbetween the project’s various contractors and to control the quality of the works executed.Moreover, BPC has appointed different experienced consultants for the implementation of theproject’s various components. Besides, BPC is currently recruiting experienced professionalsto work on the implementation of the project. Furthermore, the Bank through supervisionmissions will support BPC in early detection of bottlenecks and removal of the same.

4.5.4 The EPC contract for construction of power plant has been awarded to ChinaNational Electric Equipment Corporation and Shenyang Boiler Works (CNEEC-SBW) and isto be implemented over 42 months. The EPC consortium is experienced in building similarpower plants. To ensure that the plant is built with in the stipulated period, the EPC contractcontains a clause dealing with penalties for liquidated damages, which will be invoked if thecontractor fails to commission the plant within 42 months from the commencement date.

4.5.5 The Coal Supply Agreement for the supply of coal from MCL, which is a localpublic-private coal mining company, is being negotiated. It is expected that the contract forthe supply of coal will be signed by October 2009.

4.5.6 The 400 kV Morupule B–Phokoje line (Northern Transmission line), which is beingfunded by the IBRD is expected to provide the commissioning power (25MW) to MorupuleB. A delay is anticipated in the commissioning of the line due to delays in procurement. Theline was expected to provide the commissioning power to Morupule B. To mitigate this risk,BPC is taking actions to advance the construction of the inter-tie between Morupule B andMorupule A to supply the power for commissioning of Morupule B power plant.

Operational Risks

4.5.7 Given the new type of boiler and cooling technology, BPC needs assistance from theEPC contractor in the operation and maintenance of the plant. To avoid the operations risks,the EPC contract stipulates that plant operation and maintenance will be the responsibility of the EPC contractor for a period of two years from the completion date of the power plant.Thereafter the plant would be fully operated by BPC staff.

Environmental, social and health risks4.5.8 Overall impacts are deemed to be manageable. BPC will monitor the performance of the contractors through relevant Environmental Management and Resettlement Action Plans.

4.5.9 Plant emissions: The computer simulation of cumulative impacts combined emissionsfrom the existing Morupule A and the proposed Morupule B Plants, particularly the sulphurdioxides (SOx) shows that the World Bank Guideline limits will be marginally exceeded. TheWorld Bank is discussing with BPC the implementation of an air quality monitoring for the



19

airshed (collect actual data) to assess the possible mitigation. This will most likely involvethe installation of the Flue Gas Desuphurization (FGD) units in the existing plant.

4.5.10 To evade conflict-related risks which may arise due to influx of expatriate works fromneighboring countries and China, BPC will appoint a community outreach expert to avoidconflicts among workers. The community outreach expert will interface and interact withthe parties to consult with them as required to address the issues. Furthermore, the WorldBank is supporting the outreach activities for HIV prevention.

Climate Change Risk

4.5.11 The greenhouse gases produced impose a risk to climate. This risk is being addressedby helping GoB to adopt a low carbon path through investment in energy efficiency, solarhome systems and Concentrating Solar Power. The energy efficiency programs are beingfunded by DANIDA. The UNDP/GEF is funding the rural electrification programs based onrenewable energy. The Bank will fund the feasibility study of 200 MW Concentrating SolarPower plant, thereby paving the way for harnessing solar energy.

4.6 Knowledge Building

4.6.1 The project comprises a number of technical assistance components: (i) Tariff policyand establishment of a regulatory authority for the power and water sectors, includingcapacity building; (ii) Communication program; (iii) Feasibility studies for ConcentratingSolar Power and Carbon Capture Readiness including implementation approach and plans;(iv) Training for safeguards monitoring and management; and (v) Coal / CBM strategydevelopment and implementation. With the completion of the above studies, the Governmentwill be adequately empowered to initiate actions to prepare a lower carbon path fordevelopment.

4.6.2 In addition, the project focuses on the building of capacity through skill transfer andknowledge management as summarised below:

(a) Transmission systems: Technical Assistance on transmission network (automatic

generation control (AGC) system software, system harmonic studies, control areaestablishment and training) will be funded by the World Bank.

(b) Power Plant Consultant (Fitchner): The Fichtner contract makes provision for aformalised on the job training programme and a formal training and study tour for six BPCtechnical staff in their design office in Stuttgart.

(c) Power Plant – EPC contractor: A detailed training requirement is included in the EPCcontract to provide the training to BPC staff in and out of the country. The training programis estimated to cost US$1.3 million.

5. LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal instrument

The legal instruments used for the project is:

• A Loan agreement to be entered into between the Republic of Botswana and ADB

5.2 Conditions associated with Bank’s intervention

(A) Conditions Precedent to Entry into Force of the Loan



20

The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions Applicable to Loan Agreements andGuarantee Agreements of the Bank as amended.

(B) Undertakings

The Borrower undertakes to prepare an electricity pricing policy and establish the sectorregulatory authority by the end of 2011.

(C) Conditions Precedent to First Disbursement of the Loan

The first disbursement of the Loan shall be subject to the following conditions:

(i) Providing evidence to the Bank of either (a) the actual payment, to the people affectedby the Project, of the amounts for the resettlement and compensation as set out in theResettlement Action Plan (RAP) with respect to the components to be financed by the Bank,or (b) the establishment and the maintaining, directly or through its Executing Agency, with afinancial institution acting as an escrow agent and acceptable to the Bank, of an

indemnification escrow account in which the same amounts (or their outstanding part) will bedeposited for the purpose of the payments indicated in the RAP until the last of suchpayments is effected;

(ii) Providing evidence to the Bank of: (a) the recruitment of two electrical engineers toreinforce the Transmission Business Unit to ensure the coordination, monitoring supervisionand timely implementation of the project; and (b) the appointment of an EnvironmentalLiaison Officer and a Safeguards Officer to reinforce the Safeguards implementation;

(iii) Providing evidence to the Bank of the opening of Special Accounts for each of thefollowing contracts: (a) transmission line (b) Substations (c) Reactive Compensation and (d)Start-up fuel for commissioning of the generating units in accordance with the Bank’sguidelines;

(iv) Providing evidence to the Bank of the IBRD loan having been approved;

(v) Providing evidence to the Bank of the establishment of the Inter-ministerial SteeringCommittee headed by the Permanent Secretary of the Ministry of Minerals, Energy andWater Resources; and

(vi) Providing evidence to the Bank of the Coal Supply Agreement having been executedbetween BPC and MCL.

5.3 Compliance with Bank Policies

This project complies with all applicable Bank policies, particularly the Public SectorLending Policies, Integrated Environmental and Social Assessment Procedures, Bank’sPolicy on Resettlement and Involuntary Displacement, and Bank’s crosscutting themes of Gender, Governance, Poverty and consultations with stakeholders.



21

6. – RECOMMENDATION

The Management recommends that the Board of Directors approve the proposed loan of UA139.30 million and a MIC grant of UA 0.6 million to the Government of Botswana for thepurposes and subject to the conditions stipulated in this report and in the Loan Agreement.



Annex 1

Botswana Morupule B Power Project

Country’s comparative socio-economic indicators

Year Botswana Afr ica

Develo-

ping

Countries

Develo-

ped

CountriesBasic Indicators Area ( '000 Km²) 582 30 323 80 976 54 658Total Population (millions) 2008 1.9 985.7 5 523.4 1 226.3Urban Population (% of Total) 2008 59.7 39.2 44.0 74.4Population Density (per Km²) 2008 3.3 32.5 23.0 49.6GNI per Capita (US $) 2007 5 840 1 226 2 405 38 579Labor Force Participation - Total (%) 2005 46.0 42.3 45.6 54.6Labor Force Participation - Female (%) 2005 44.9 41.1 39.7 44.9Gender -Related Development Index Value 2006 0.660 0.482 0.694 0.911Human Develop. Index (Rank among 174 countries) 2006 126 n.a. n.a. n.a.Poverty Headcount Ratio at National Line (% of Pop.) 2003 30.3 34.3 25.0 …

Demographic Indicators

Population Growth Rate - Total (%) 2008 1.3 2.3 0.3 1.2Population Growth Rate - Urban (%) 2008 2.5 3.3 2.5 0.5Population < 15 years (%) 2008 34.2 40.9 16.6 27.4Population >= 65 years (%) 2008 3.5 3.4 16.7 8.0

Dependency Ratio (%) 2008 60.7 79.5 47.7 53.9Sex Ratio (per 100 female) 2008 99.1 99.3 94.3 101.5Female Population 15-49 years (% of total population) 2008 26.8 24.2 24.3 25.8Life Expectancy at Birth - Total (years) 2008 51.0 54.5 76.7 67.5Life Expectancy at Birth - Female (years) 2008 50.9 55.6 67.5 80.3Crude Birth Rate (per 1,000) 2008 24.7 35.7 11.0 20.1Crude Death Rate (per 1,000) 2008 14.1 13.0 10.4 8.6Infant Mortality Rate (per 1,000) 2008 44.7 83.9 7.1 48.5Child Mortality Rate (per 1,000) 2008 64.4 137.4 8.8 72.3Total Fertility Rate (per woman) 2008 2.9 4.6 1.6 2.5Maternal Mortality Rate (per 100,000) 2005 380.0 683 450 9Women Using Contraception (%) 2000 44.4 29.7 61.0 75.0

Health & Nutrition Indicators

Physicians (per 100,000 people) 2007 28.0 39.6 78.0 287.0Nurses (per 100,000 people) 2007 236.5 120.4 98.0 782.0Births attended by Trained Health Personnel (%) 2006 94.0 51.2 59.0 99.0Access to Safe Water (% of Population) 2006 96.0 64.3 84.0 100.0Access to Health Services (% of Population)* 2004 95.0 61.7 80.0 100.0Access to Sanitation (% of Population) 2006 47.0 37.6 53.0 100.0Percent. of Adults (aged 15-49) Living with HIV/AIDS 2007 23.9 4.5 1.3 0.3Incidence of Tuberculosis (per 100,000) 2006 551.0 315.8 275.0 19.0Child Immunization Against Tuberculosis (%) 2007 83.0 83.0 89.0 99.0Child Immunization Against Measles (%) 2007 79.0 83.1 81.0 93.0Underweight Children (% of children under 5 years) 2004 5.9 25.2 27.0 0.1Daily Calorie Supply per Capita 2004 2 084 2 436 2 675 3 285Public Expenditure on Health (as % of GDP) 2005 4.3 2.4 1.8 6.3

Education Indicators

Gross Enrolment Ratio (%)

Primary School - Total 2007 112.2 99.6 106.0 101.0Primary School - Female 2007 112.0 92.1 103.0 101.0Secondary School - Total 2005 76.5 43.5 60.0 101.5Secondary School - Female 2005 77.0 40.8 58.0 101.0

Primary School Female Teaching Staff (% of Total) 2007 77.6 47.5 51.0 82.0Adult Illiteracy Rate - Total (%) 2007 17.1 38.0 21.0 1.0Adult Illiteracy Rate - Male (%) 2007 17.2 29.0 15.0 1.0

Adult Illiteracy Rate - Female (%) 2007 17.1 47.0 27.0 1.0Percentage of GDP Spent on Education 2005 8.2 4.5 3.9 5.9

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2005-08 0.6 6.0 9.9 11.6Annual Rate of Deforestation (%) 2000-08 0.9 0.7 0.4 -0.2Annual Rate of Reforestation (%) 2000-08 … 10.9 … …Per Capita CO2 Emissions (metric tons) 2005-08 2.3 1.0 1.9 12.3

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; last update :

UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports

Note : n.a. : Not Applicable ; … : Data Not Available.

March 2009

Infant Mortality Rate

( Per 1000 )

0

20

40

60

80

100

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

Botswana Af ri ca

GNI per capita US $

0

1000

2000

3000

4000

5000

6000

7000

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

Botswana Africa

Population Growth Rate (%)

0.0

0.5

1.0

1.5

2.0

2.5

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

Botswana

Africa

Life Expectancy at Birth (years)

1

11

21

31

4151

61

71

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

Botswana

Africa



Botswana – Morupule B Project

ADB’s portfolio in the country as at June 2009List of active projects (loans and grants) by Sector (million of UA)

Project Title Window Approved Signature Effectiveness Completion Approved Cancelled

Date Date Date Date Amount Amount

Agriculture

Pandamatenga ADB Loan 7-Sep-2008 28-Apr-2009 Not yet effective 31-Dec-13 37.3 0.0

Capacity Building for MOA MIC 27-Feb-2007 17-May-2007 17-May-2007 31-Dec-09 0.3 0.0

Improved Water Management System for Pandamatenga A WF 18-Jun-2007 12-Jul-2007 12-Jul-2007 31-Dec-09 1.1 0.0

Agricultural Sector Review MIC 16-Feb-2007 14-May-2007 17-May-2007 30-Apr-09 0.5 0.0

Sub-Total: Agriculture 39.1 0.0

Transport

Kanzangula Bridge MIC 5-Feb-2007 4-Dec-2007 4-Dec-2007 31-Dec-09 0.6 0.0

Kanzangula Bridge IPPF 1-Dec-2006 17-May-2007 17-May-2007 31-Dec-10 1.5 0.0

Sub-Total: Transport 2.1 0.0

Multi-Sector ( excl. Economic Diversification Support Loan)

Institutional strengthening of local authorities MIC 31-Jan-2008 11-Sep-2008 2 1-May-2009 31-Dec-09 0.3 0.0

Vision 2016 MIC 1-Nov-2008 1-Jun-2008 21-May-2009 1-Dec-10 0.2 0.0

Corporate Governance Code MIC 1-Mar-2007 1-Mar-2007 2-Jul-2007 31-Dec-08 0.2 0.0

Sub-Total: Multi-Sector 0.7 0.0

Total excl. Economic Diversification Support Loan 41.8 0.0

Economic Diversification Support Loan (EDSL)

EDSL program ADB 2-Jun-2009 -- -- -- 1,000.0 --

Grand Total 1,041.8 0.0

MIC Total 2.1

ADB Total 1,037.3

AWF Total 1.1

IPPF Total 1.5

Notes:

Mmamabula Independent Power Producer Project currently under consideration by OPSM. Amount to be provided will depend on single obligor limit and the Bank's appetite



Botswana – Morupule B Project

Key related projects financed by the Bank and other development partners in th

Funding Organisation Type of Assistance Name of Project Amount

International Atomic EnergyAgency

Technical Assistance Energy Economics andElectricity ExpansionPlanning

USD 120,000

GTZ (Deutsche Gesellschaft fürTechnische Zusammenarbeit)(GmbH) Germany

Financial & TechnicalExpertise

Biomass Energy StrategyDevelopment

EUR 100,000

USTDA Financial & TechnicalExpertise Financial advisoryassistance for the proposedMmamabula Project

USD 359,921

UNDP/GEF Financial assistance Implementation of theRenewable energy basedelectrification Programme

USD 20 millio

DANIDA(Danish InternationalDevelopment Assistance,Denmark)

Financial and Technical Energy Efficiency andEnergy Conservation inBuilding Sector inBotswana

DKK 10,174,1



Annex 4

Morupule B Project

Map of Botswana showing key generation and transmission assets (proposed and existing)